“2018 has been a year of transformation for Providence while at the same time, continuing to deliver positive financial performance," stated Carter Pate, Interim Chief Executive Officer. He continued, "We finished the year strong with LogistiCare delivering Adjusted EBITDA margins of 8.6% for the quarter driven mostly by expected seasonality. We had started the year by setting out a path to better focus our resources on the opportunities available to LogistiCare through our organizational consolidation of our Arizona and Connecticut offices into LogistiCare's Atlanta office which is substantially complete and our strategic alternatives process for WD Services segment which resulted in a sale. 2019 will be another year of transformation as we continue to integrate Circulation and roll-out the new technology platform across LogistiCare’s existing operations. Matrix continues its own transformation with the integration of HealthFair.”

Fourth Quarter 2018 Results

For the fourth quarter of 2018, the Company reported revenue of $360.8 million, an increase of 9.1% from $330.6 million in the fourth quarter of 2017. The new revenue standard that the Company adopted in the first quarter of 2018 resulted in a negative impact to revenue of $4.3 million in the fourth quarter of 2018 versus the prior standard.

Loss from continuing operations, net of tax, in the fourth quarter of 2018 was $1.5 million, or $0.20 per diluted common share, compared to income from continuing operations net of tax of $38.0 million, or $2.35 per diluted common share, in the fourth quarter of 2017. Loss from continuing operations, net of tax, in the fourth quarter of 2018 includes an impairment charge of $13.5 million related to in-process software in NET Services resulting from the decision to adopt the technology acquired in the Circulation transaction, compared to income in the fourth quarter of 2017, which included a tax benefit due to the impact of the Tax Cuts and Jobs Act (the “Tax Reform Act”) of $29.5 million in total, including a significant component included in equity income related to Matrix. The loss and income from continuing operations, net of tax, in the fourth quarters of 2018 and 2017 include restructuring and related charges of $4.4 million and $3.1 million, respectively. Loss from continuing operations, net of tax, in the fourth quarter of 2018 also includes $5.4 million of transaction costs including amounts related to the acquisition of Circulation.

Adjusted Net Income in the fourth quarter of 2018 was $17.2 million, or $1.08 per diluted common share, compared to $10.7 million, or $0.61 per diluted common share, in the fourth quarter of 2017.

Adjusted EBITDA was $27.3 million in the fourth quarter of 2018, compared to $21.0 million in the fourth quarter of 2017 with margins of 7.6% and 6.3% respectively.

Sale of WD Services

On December 21, 2018, the Company announced that it had completed the sale of substantially all of the operating subsidiaries of its WD Services segment to Advanced Personnel Management Global Pty Ltd of Australia ("APM"), except for the segment’s employment services operations in Saudi Arabia. The Saudi Arabian government assumed these operations beginning January 1, 2019.

At closing, the Company received total cash consideration of $46.5 million from APM, with the buyer retaining cash on the balance sheet of $21.0 million. Transaction fees and bonuses were $6.7 million. In addition, the Company expects to realize cash tax benefits of approximately $51.9 million from the transaction, including $0.6 million realized as of year-end and approximately $33.7 million in tax refunds or offsets to tax payments otherwise due by the fourth quarter of 2019. The remaining cash tax benefit of $17.6 million is expected to be realized as an offset to tax payments over the following three years, based upon the Company’s current estimate of taxable income.

WD Services has been classified as discontinued operations for all periods, including a loss on sale of $1.1 million in the fourth quarter of 2018 recorded upon the closing of the transaction. The loss includes a reclassification of cumulative (foreign currency) translation adjustment of $29.4 million.

During the fourth quarter, the Company paid off the $36.0 million of borrowings outstanding under the revolving credit facility at the end of the third quarter, with net proceeds from the transaction and other cash on hand.

Organizational Consolidation

Our organizational consolidation is substantially complete with the hiring of two senior finance positions in early 2019. Two members of the Company's former executive team exited the Company on December 31, 2018 as planned. The remainder of our Stamford, CT and Tucson, AZ based corporate teams will exit the Company by the end of the second quarter of 2019 as planned.

Segment Results

For analysis purposes, the Company provides revenue, expenses, operating income (loss), income (loss) from continuing operations, net of taxes, and Adjusted EBITDA on a segment basis. Segment results include revenue and expenses incurred by each segment, as well as an allocation of certain direct expenses incurred by Corporate and Other on behalf of the segment. No direct cash expenses were incurred by Corporate on behalf of the Matrix Investment segment. The activities reflected in Corporate and Other include executive, accounting, finance, internal audit, tax, legal, public reporting and corporate development functions and the results of the Company’s captive insurance company.

NET Services

NET Services revenue was $360.8 million for the fourth quarter of 2018, an increase of 9.1% from $330.6 million in the fourth quarter of 2017. Operating income was $10.2 million, or 2.8% of revenue, in the fourth quarter of 2018, compared to $23.8 million, or 7.2% of revenue, in the fourth quarter of 2017. Included in NET Services operating income in the fourth quarters of 2018 and 2017 were $0.9 million and $1.4 million, respectively, of restructuring and related charges. Operating Income in the fourth quarter of 2018 also reflects transaction charges related to the Circulation acquisition of $2.0 million and an impairment charge of $13.5 million related to in-process IT software resulting from the decision to adopt the technology acquired in the Circulation transaction. NET Services Adjusted EBITDA was $31.2 million, or 8.6% of revenue, in the fourth quarter of 2018, compared to $28.7 million, or 8.7% of revenue, in the fourth quarter of 2017. Fourth quarter 2018 revenue includes a negative impact of $4.3 million from the adoption of the new revenue recognition standard, as the accounting for one contract changed from a gross basis to net basis. This change had no impact on operating income or Adjusted EBITDA.

The quarter-over-quarter increase in NET Services revenue was primarily due to the impact of new contracts, including managed care organization (“MCO”) contracts in Indiana and Illinois and a new state contract in West Virginia, net increased revenue from existing contracts due to the net positive impact of membership and rate changes together with revenue from the acquisition of Circulation at the end of the third quarter of 2018. These increases were partially offset by the impact of contracts we no longer serve, including a state contract in Connecticut and certain MCO contracts in Louisiana. Adjusted EBITDA increased in the fourth quarter of 2018 due to the impact of the revenue increase noted above together with the benefit of securing rates in states such as California that better reflect the level of utilization. Adjusted EBITDA margin was marginally lower as, despite the above, the prior year had the benefit of a significant expense reserve being released upon the finalization of a contract amendment with a state customer.

Corporate and Other

Corporate and Other incurred a $10.9 million operating loss in the fourth quarter of 2018 compared to an operating loss of $9.6 million in the fourth quarter of 2017. Included within Corporate and Other operating loss in the fourth quarter of 2018 were restructuring and related costs of $3.5 million related to the consolidation of the holding company structure into LogistiCare and transaction costs of $3.4 million. Fourth quarter 2017 included restructuring cost of $1.7 million related to severance of the former CEO and income related to a litigation settlement of $5.3 million. Corporate and Other Adjusted EBITDA was negative $3.8 million in the fourth quarter of 2018 compared to negative $7.7 million in the fourth quarter of 2017.

The decrease in Corporate and Other's Adjusted EBITDA loss was primarily due to a decrease in cash settled stock-based compensation expense of $2.2 million as a result of a reduction in the Company’s stock price in the fourth quarter of 2018 compared to an increase in the fourth quarter of 2017, together with reductions across remaining corporate expenses.

Matrix Investment (Equity Investment)

For the fourth quarter of 2018, Providence recorded a loss in equity earnings of $2.1 million related to its Matrix Investment compared to income of $13.0 million for the fourth quarter of 2017 which included a beneficial impact from the Tax Cuts and Jobs Act (the “Tax Reform Act”).

As Providence’s interest in Matrix is accounted for as an equity method investment, the following numbers are not included within the Company’s consolidated results of operations. For the fourth quarter of 2018, Matrix’s revenue was $65.7 million, an increase of 25.1% from $52.5 million in the fourth quarter of 2017. Matrix’s operating loss was $6.5 million for the fourth quarter of 2018, compared to operating income of $1.8 million, for the fourth quarter of 2017. Included within Matrix’s operating loss in the fourth quarter of 2018 were $0.6 million of management fees paid to Matrix shareholders and integration costs of $2.2 million related to the February 2018 acquisition of HealthFair. Included within Matrix's operating income in the fourth quarter of 2017 were $0.5 million of management fees paid to Matrix shareholders and acquisition costs of $0.4 million.

Matrix's net loss was $6.2 million for the fourth quarter of 2018, compared to net income of $27.4 million for the fourth quarter of 2017. Matrix’s Adjusted EBITDA was $12.5 million, or 18.9% of revenue, for the fourth quarter of 2018, compared to $11.6 million, or 22.1% of revenue, in the fourth quarter of 2017. Matrix net income in 2017 includes a tax benefit due to the impact of the Tax Reform Act of $13.6 million (that also resulted in an additional $3.4 million of tax for Providence). Net loss in 2018 reflects the operations of HealthFair, which performed below expectations, as previously discussed.

The year-over-year revenue growth for the fourth quarter of 2018 was related to the growth in volumes in Matrix's core in-home assessment business, pricing in line with the prior year and the addition of revenue from mobile visits due to the acquisition of HealthFair in the February 2018. Adjusted EBITDA increased year over year but the decline in Adjusted EBITDA margin was primarily due to the lower than anticipated HealthFair mobile visit volume. We anticipate continued challenges in 2019 as the Matrix leadership continues its integration of HealthFair.

As of December 31, 2018, Matrix had cash of $23.9 million and $328.4 million of term loan debt outstanding under its credit facility, which was entered into in February 2018 in conjunction with the HealthFair acquisition. As of December 31, 2018, Providence's ownership interest in Matrix was 43.6%.

Investor Presentation and Conference Call

Providence will hold a conference call to discuss its financial results on Thursday, February 28, 2019 at 8:00 a.m. ET. An investor presentation has been prepared to accompany the conference call and can be found on the Company’s website (investor.prscholdings.com.). To access the call, please dial:

You may also access the conference call via webcast at investor.prscholdings.com, where the call also will be archived.

About Providence

The Providence Service Corporation owns subsidiaries and investments primarily engaged in the provision of healthcare services in the United States. For more information, please visit prscholdings.com.

Non-GAAP Financial Measures and Adjustments

In addition to the financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this press release includes EBITDA and Adjusted EBITDA for the Company and its operating segments, and Adjusted Net Income and Adjusted EPS for the Company, which are performance measures that are not recognized under GAAP. EBITDA is defined as income (loss) from continuing operations, net of taxes, before: (1) interest expense, net, (2) provision (benefit) for income taxes and (3) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before certain items, including (as applicable): (1) restructuring and related charges, including costs related to our corporate reorganization, (2) equity in net earnings or losses of investees, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) certain transaction and related costs and (5) asset impairment charges. Adjusted Net Income is defined as income (loss) from continuing operations, net of tax, before certain items, including (1) restructuring and related charges, (2) equity in net earnings or losses of investees, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) intangible amortization expense, (5) gain or loss on sale of equity investments, (6) the non-recurring impact of the Tax Cuts and Jobs Act, (7) excess tax charges associated with long-term incentive plans, (8) the impact of adjustments on noncontrolling interests, (9) certain transaction and related costs, (10) the income tax impact of such adjustments and (11) asset impairment charges. Adjusted EPS is calculated as Adjusted Net Income less (as applicable): (1) dividends on convertible preferred stock and (2) income allocated to participating stockholders, divided by the diluted weighted-average number of common shares outstanding. We utilize these non-GAAP performance measures, which exclude certain expenses and amounts, because we believe the timing of such expenses is unpredictable and not driven by our core operating results, and therefore render comparisons with prior periods as well as with other companies in our industry less meaningful. We believe such measures allow investors to gain a better understanding of the factors and trends affecting the ongoing operations of our business. We consider our core operations to be the ongoing activities to provide services from which we earn revenue, including direct operating costs and indirect costs to support these activities. In addition, our net earnings in equity investees are excluded from these measures, as we do not have the ability to manage these ventures, allocate resources within the ventures, or directly control their operations or performance.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies, and exclude expenses that may have a material impact on our reported financial results. The presentation of non-GAAP financial information is not meant to be considered in isolation from or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “demonstrate,” “expect,” “estimate,” “forecast,” “anticipate,” “should” and “likely” and similar expressions identify forward-looking statements. In addition, statements that are not historical should also be considered forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are based on current expectations that involve a number of known and unknown risks, uncertainties and other factors which may cause actual events to be materially different from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, our continuing relationship with government entities and our ability to procure business from them, our ability to manage growing and changing operations, the implementation of healthcare reform law, government budget changes and legislation related to the services that we provide, our ability to renew or replace existing contracts that have expired or are scheduled to expire with significant clients, and other risks detailed in Providence’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2018. Providence is under no obligation to (and expressly disclaims any such obligation to) update any of the information in this press release if any forward-looking statement later turns out to be inaccurate whether as a result of new information, future events or otherwise.

(1) Impairment related to decision not to proceed with NET Services in-process "Next Generation" IT project due to acquisition of Circulation technology.(2) Restructuring and related charges include value enhancement initiative implementation costs of $587 and severance costs of $348 within NET Services and organizational consolidation costs of $3,489 within Corporate and Other.(3) Transaction costs related to the acquisition of Circulation by NET Services and certain Corporate transaction related expenses.

(1) Restructuring and related charges include value enhancement implementation initiative costs of $1,404 for NET Services and $1,716 of severance and other costs related to the former CEO of Providence within Corporate and Other.(2) Litigation income related to the settlement of a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.

(1) Impairment related to decision not to proceed with NET Services in-process "Next Generation" IT project due to acquisition of Circulation technology.(2) Restructuring and related charges include value enhancement initiative implementation costs of $2,837 and severance costs of $348 for NET Services and organizational consolidation costs of $8,361 within Corporate and Other.(3) Transaction costs related to the acquisition of Circulation by NET Services and certain Corporate transaction related expenses.(4) Gain on re-measurement of the Company's initial cost method investment in Circulation, upon acquisition of all of remaining equity

(1) Restructuring and related charges include $214 of former CEO departure costs and value enhancement implementation initiative costs of $6,104 for NET Services and $1,716 of severance and other costs related to the former CEO of Providence within Corporate and Other.(2) Litigation income related to the settlement of a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.

(1) The results of equity method investments are excluded from the calculation of Providence's Adjusted EBITDA and Adjusted Net Income.(2) Excludes depreciation and amortization.(3) Includes $3,748 of expense related to the acceleration of deferred financing fees upon debt refinancing.(4) Includes amounts relating to management fees due from Matrix to Providence of $257 as well as other adjustments.(5) Includes amounts relating to management fees due from Matrix to Providence of $247 less Providence share-based compensation expense of $26.(6) Includes amounts relating to management fees due from Matrix to Providence of $2,301 less Providence share-based compensation expense of $137 as well as other adjustments.(7) Includes amounts relating to management fees due from Matrix to Providence of $1,087 less Providence share-based compensation expense of $76.(8) Represents cash of $23,925 and debt of $328,350 on Matrix's standalone balance sheet as of December 31, 2018.

(1) Matrix's Adjusted EBITDA is not included within Providence's Adjusted EBITDA in any period presented.(2) Providence accounts for its proportionate share of Matrix's results using the equity method.(3) Excludes depreciation and amortization.(4) Management fees in the first twelve months of 2018 include fees earned in association with the acquisition of HealthFair.(5) 2018 includes the results of HealthFair since the date of acquisition on February 16, 2018.

The Providence Service CorporationReconciliation of Non-GAAP Financial MeasuresAdjusted Net Income and Adjusted Net Income per Common Share:(in thousands, except share and per share data)(Unaudited)

Three months ended December 31,

Twelve months ended December 31,

2018

2017

2018

2017

Income from continuing operations, net of tax

$

(1,454

)

$

38,008

$

18,228

$

51,085

Asset impairment charge (1)

13,497

—

14,175

—

Restructuring and related charges (2)

4,569

3,120

11,984

8,034

Transaction costs (3)

5,417

—

7,231

—

Equity in net (gain) loss of investees

2,052

(13,017

)

6,158

(13,445

)

Gain on remeasurement of cost method investment

—

—

(6,577

)

—

Intangible amortization expense

1,565

730

3,755

2,920

Litigation (income) expense, net (4)

(8

)

(5,273

)

(226

)

(4,969

)

Impact of Tax Reform Act

—

(19,304

)

—

(19,304

)

Tax adjustment for 2015 Holding Company LTI Program

—

3,590

—

3,590

Tax effected impact of adjustments

(8,438

)

2,878

(9,849

)

253

Adjusted Net Income

17,200

10,732

44,879

28,164

Dividends on convertible preferred stock

(1,112

)

(1,114

)

(4,420

)

(4,419

)

Income allocated to participating securities

(2,174

)

(1,240

)

(5,438

)

(3,063

)

Adjusted Net Income available to common stockholders

$

13,914

$

8,378

$

35,021

$

20,682

Adjusted EPS

$

1.08

$

0.61

$

2.69

$

1.51

Diluted weighted-average number of common shares outstanding

12,926,598

13,664,727

13,033,247

13,673,314

(1) Asset impairment charge of $13,497 in the current quarter related to decision not to proceed with NET Services' in-process "Next Generation" IT project due to acquisition of Circulation technology.(2) Restructuring and related charges are comprised of employee separation costs as well as third-party consulting and implementation costs related to NET Services' LogistiCare various value initiatives and costs related to the consolidation of the holding company activities into LogistiCare including $436 of accelerated depreciation related to corporate property, plant & equipment for the twelve months ended December 31, 2018. See the above Segment Information and Adjusted EBITDA tables for a detailed breakdown of the restructuring and related charges for each time period presented.(3) Transaction costs related to the acquisition of Circulation, Inc. in NET Services and certain other Corporate transaction related expenses.(4) Income or expense related to defense cost and final settlement for a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.

The following table summarizes the impact that the adoption of ASC 606, Revenue from Contractswith Customers, had on the Company's results for the three and twelve months ended December 31, 2018:

Three Months Ended December 31, 2018

Three MonthsEnded December 31, 2017 (1)

Segment

Caption

Historical US GAAP

ASC 606 Adjustment

As Reported

As Reported

NET Services (2)

Revenue

$

365,084

$

(4,322

)

$

360,762

$

330,558

Adjusted EBITDA

31,184

—

31,184

28,717

Corporate and Other

Revenue

—

—

—

—

Adjusted EBITDA

(3,841

)

—

(3,841

)

(7,737

)

Total Continuing Operations

Revenue

$

365,084

$

(4,322

)

$

360,762

$

330,558

Adjusted EBITDA

27,343

—

27,343

20,980

7.5

%

7.6

%

6.3

%

Twelve Months Ended December 31, 2018

Twelve MonthsEnded December 31, 2017 (1)

Segment

Caption

Historical US GAAP

ASC 606 Adjustment

As Reported

As Reported

NET Services (2)

Revenue

$

1,400,453

$

(15,488

)

$

1,384,965

$

1,318,220

Adjusted EBITDA

92,497

—

92,497

85,333

Corporate and Other

Revenue

—

—

—

—

Adjusted EBITDA

(19,682

)

—

(19,682

)

(25,803

)

Total Continuing Operations

Revenue

$

1,400,453

$

(15,488

)

$

1,384,965

$

1,318,220

Adjusted EBITDA

72,815

—

72,815

59,530

5.2

%

5.3

%

4.5

%

(1) The Company adopted ASC 606 using the modified retrospective method resulting in an opening retained earnings adjustment of $5,710, primarily related to the WD Services segment, now classified as discontinued operations. Prior periods are not adjusted for the new revenue standard.(2) NET Services 2018 revenue was impacted by a change to recognize revenue for one contract on a net basis. There is no margin impact for this adjustment.

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